Scanning the healthcare sector

During 2012, the domestic public healthcare system continued to embody underfunding and relatively poor quality (according to IMF Country Report) and to depict the lowest level of spending in Europe1. Most of the local downsides were still referring to financial imbalances, low spending levels and poor services.


 However, a step ahead is represented by the on-going computerization process, which encompasses the following: introduction of electronic prescription, implementation of the integrated computer system (i.e. an electronic database comprising patients’ names, medical staff, hospitals and rendered services) and health card introduction. The entire project, valued at approximately EUR 132 million and mainly financed by European funds, is part of a reorganisation of the health sector. At the beginning (January 2013), this process encountered some barriers, from an operational point of view. Even though pharmacists and family doctors perceived this as a bureaucratic operation, at national level, the platform offers a real time status on the evolution of subscriptions and minimizes the fraud risk for the compensated subscriptions. During the first seven months of 2013, there were 28.1 million electronic prescriptions, out of which 26.4 million issued, and 11.222 family doctors registered in the system. 
Expectations are far from being rosy, but not very worrisome either, as most of the specialists foresee a stagnating background in healthcare. Following several years of strong investments (2009 – 2011), the private healthcare sector is currently lounging around, focusing on consolidation, but enjoying more confidence from population. In spite of fatigue signals revealed recently, the sector is still amongst the most dynamic ones in Romania, with annual growth of 15% in 2009, 10% in 2010 and 20% in 2011. In fact, during 2011 – 2013, Romania ranked third amongst Central Eastern European countries in terms of M&A deals, with 11 transactions closed compared to a performance mark of 50 deals in Poland and 32 finalized projects in Turkey. Currently, the Romanian private system numbers 55 hospitals out of a total of 479 units within the entire Healthcare sector, with a significant potential for further privatisation. 
Actually, our local system outweighs its counterpart industry in well-developed peers such as Hungary or Slovakia, but is outperformed by healthier sectors in countries like Poland, Czech Republic or Turkey, where local and foreign investments are highly encouraged by the State. For the current year, the local Healthcare sector was allocated EUR 6.2 billion, representing 4.4% of the GDP (i.e. EUR 145 billion) – a mark slightly lower than the CEE level average of 6.7% and the one for Western European countries – 9.8%. Compared to prior years, the difference is quite noticeable, as in 2012 the relative GDP contribution to Healthcare amounted to 4% (EUR 5.44 billion out of EUR 135 billion) and in 2011 to 5% (i.e. EUR 6.85 billion out of EUR 137 billion)2. 
Even though the private healthcare market proved to be one of the most dynamic ones during turmoil times, consolidation  signs were eventually revealed in 2012, a time when past investments were coming close to maturity. Top ten private healthcare providers amounted to EUR 230 million in terms of investments. The five leading players recorded significant growth due to expansion strategies and ascending market shares, which were achieved based on low income generated by small competitors and on agreements concluded with multinational companies for employees’ subscriptions. In 2012, the healthcare sector of private ownership, mainly supported via cash and subscriptions paid by patients, reached EUR 500 million, with growth rate of 20% from one period to another3 and an increasing proportion of urban population being provided at least once with healthcare services shifting from 57% in 2009 to 80% in 20134. Out of the total revenue attained in 2012, EUR 45 million were reimbursed by the State. As depicted in the chart above, MedLife was the absolute leader of the market in 2012, with a turnover of EUR 59 million, a result of an intensive investment programme started in 2011, which is estimated to be finalised in 2015. Financing from the International Finance Corporation and Banca Comerciala Romana enabled the company to expand its operations and also to open other medical units in Bucharest and various cities of Romania.

In the first half of 2013, MedLife recorded a 17% revenue growth and is currently planning to open MedLife Genetics, focusing on Genetics and Molecular Biology. Revenues generated by subscriptions represent 30% of MedLife turnover with „medium” impact on the total business, as per Mr. Marcu, the company’s CEO. Second player in 2012, Regina Maria, and insurance company Groupama launched in March 2013 a co-branded health insurance product for Romanian individual, corporate and SME consumers, – Asigurarea Medicala Integrala (Complete Medical Insurance) -, an innovative package on the local market which covers all types of services rendered by the healthcare provider. The same strategy, but headed towards another target, was pursued by its main competitor MedLife, who launched together with insurer Generali a health insurance for up to 64-year old individuals. Both players identified an area with vast potential within the market, taken into consideration the fact that ordinary subscriptions offered by private medical companies do not cover surgery treatments, whilst this type of insurance does. 
According to its CEO, Regina Maria’s growth during 2013 first semester was of 23%, with further one to be generated by new services, recruiting new medical teams and investing in IT. As opposed to its more prominent peers, Medicover opened its first private hospital in 2012, as a result of a EUR 20 million investment, with annual expected return of EUR 4 million, based on a BMI analysis. Its strategic path is not difficult to notice, as such a serious investment requires great deal of recoverability time. Furthermore, according to the company’s CEO (Mr. Adrian Purcarea), subsequent moves comprise the hospital’s development and increased profitability of the operations located in Romania. Gral Medical, other market performer in 2012, recently opened its first private hospital in Bucharest concentrated on Oncology therapeutic area – Oncofort – following an investment of up to EUR 7 million. Further expansion plans involve a laboratory centre in Ramnicu Valcea, intended to function as regional hub. Except for opening new medical units, acquisitions were the following strategy pursued by domestic players in order to gain market share. Although the number of transactions in the private healthcare is still low, being an emerging sector, we note the acquisition of Sanostar clinic located in Sibiu by Gral Medical, with whom it actually developed a long lasting trade relation. In 2013, the market almost stagnated in terms of new entrants, with one newcomer - Monza hospital, part of the Italian group Policlinico di Monza -, which foresees EUR 4 million turnover in 2013, expecting to reach the breakeven within 5 years, by spotting EUR 20 million accumulated revenue. Another group announcing its penetration on the Romanian market is Turkish group Bozlu, which is opening a private medical centre towards year-end, following an investment worth EUR 15 million. 
 - Maturity of investments in private healthcare facilities. 
- Increasing revenue generated from long-term hospitalisation, as patients would drift from public sector to the private one. 
- Development of oncology clinics with ambulatory radiotherapy services. 
- Increasing private medical subscriptions to the detriment of private health insurance. 
- Concentration on hospitals or medical facilities specialized in one field. 
- Increase of the supply of services provided by private healthcare. 
- Modernisation of existing treatment centers.